What is an alternative to equity release?

Whether it is for home improvements, to take that dream holiday, consolidate debts or just some money to help you through retirement, many people are turning to equity release.

If you are unsure whether you should go with equity release or an alternative option then consulting with a financial advisor may be beneficial to you.

However this isn’t the perfect option for everyone so are there any alternatives? 

What is equity release? 

Simply put equity release is freeing up some of the money that is tied up in your home.

Most equity release plans are aimed at those over the age of fifty-five, and the money that you release is tax free. The amount of money you will be able to release will depend on your age and the current value of your home.

Typically the older you are the more you can borrow against your home.

The most popular type of equity release is a lifetime mortgage where you make no repayments until either you pass away or enter into a long term care facility. At this point your property will be sold and the proceeds will be used to pay back your lifetime mortgage. 

Advantages of a lifetime mortgage

  • Tax free sum of cash. 
  • You can spend this however you want. 
  • No need to move house. 
  • No negative equity guarantee – You will never pay back more than the value of your home. 

Disadvantages to a lifetime mortgage 

  • The amount you leave as an inheritance is greatly reduced. 
  • Interest can quickly mount up increasing your total loan value. 
  • Early repayment charge – If you decide to pay off your mortgage early you will more than likely be charged an early repayment fee.  

Are there alternatives to equity release? 

Downsizing –

If your children have all left the family home, you may find that moving home and downsizing could release the funds that you need for your retirement. Of course this does come with the added stress of actually having to move home and there will be costs involved.

These include – 

  • Legal cost
  • Moving costs
  • Valuation fees
  • Estate agent fees.

Personal Loan – 

Although a personal loan is a debt, you will make monthly repayments until this is cleared meaning in theory that the amount of inheritance you can leave your beneficiaries will not be impacted as it would with a lifetime mortgage.

The older you are the more difficult a personal loan is to obtain as you will need to show your income and that you are able to meet the monthly repayments. However if you only need a small, set amount of money this could be a good option to get you over a financial hurdle. 

Retirement Interest-Only Mortgage –

As with a lifetime mortgage a retirement interest-only mortgage is paid off once you pass away and your home is sold.

However as you will be required to make monthly payments to cover the interest, the total loan amount will not spiral upwards. Therefore, the amount payable at the end could be significantly lower than with a lifetime mortgage.

You will need to show the lender that you are financially able to make the monthly payments. You will also be able to make ad-hoc capital payments also. 

If you are unsure whether you should go with equity release or an alternative option then consulting with a financial advisor may be beneficial to you. There are many advisors who are registered with the Financial Conduct Authority and who also specialise in retirement planning that will be able to talk through all of your different available options. 

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